For peanut growers, it's all about the (cotton) base and PLC

WASHINGTON, March 25, 2015 – Many peanut growers celebrated when they scored a major victory in the 2014 farm bill -- a reference price that jumped from $495 to $535 a ton. But now some are scratching their heads about some of the “unintended consequences.” Growers may find themselves in a type of perfect peanut storm: Even though peanut prices have dropped, some growers are likely to plant more.

Why? Relatively lower prices for cotton and other commodities, the availability of so-called “generic” cotton base in key peanut growing regions of the U.S., and expected payments of $100 per ton under the Price Loss Coverage (PLC) program are encouraging Southern growers to give peanuts a closer look.

University of Georgia Extension economist Nathan Smith expects peanut acres to increase 15 percent in the U.S. this year to roughly 1.5 million acres, even though production may trigger an oversupply. That’s in line with the trajectory predicted by the Congressional Budget Office (CBO) – albeit a quicker jump. The CBO estimated that peanut acres would increase from just over 1 million acres in 2013 to 1.5 million acres by 2018.

The Food and Agricultural Policy Research Institute’s (FAPRI) March 15 baseline projected peanut acreage would increase more modestly to 1.35 million in 2015 to 1.46 in 2018. With prices dropping from $498 last year to $428/ton this year, FAPRI projects that 95 percent of peanut growers will select PLC, which would pay about $142/base acre in 2015.

With the relatively low prices of other alternatives, Smith says growers would have probably increased peanut plantings regardless of the new farm bill because rotating with peanuts offers less risk.

“We would really need $5 corn or better to move acres out of peanuts,” he adds. Still, he’s worried about what 2015 may bring for the market.

“If we get a 15-20 percent increase, that’s going to put us back in 2012 with a large amount of peanuts in the pipeline,” Smith said. The record-breaking 2012 harvest produced more than 6 billion pounds of peanuts, an 84 percent increase from 2011, causing a peanut carryover for 2013 of more than 1 million pounds.

Georgia grows the largest proportion of all peanuts in the U.S., followed by Florida, Alabama and Texas. Acreage is expected to expand as peanuts will be planted on former cotton base acres - now called “generic base acres” under the 2014 farm bill.

If generic base acres are planted to a covered commodity, they are essentially added to the existing base acres for that commodity in that crop year. So if a grower has 100 acres of peanut base and 100 acres of generic base and plants all peanuts, the new peanut base will be 200 acres – serving as an incentive to plant generic base acres to the crop with the highest expected payments.

Smith says PLC for peanuts is likely to trigger in 2015, resulting in a roughly $100 per ton payment. The peanut reference price for the life of this farm bill is $535 per ton for peanuts, and the current USDA projected price is $424.86 per ton for Runner peanuts, the most commonly produced peanut in the U.S. If prices remain below the reference price, PLC payments are triggered.

However, Smith noted that if too many peanuts are planted, therefore driving prices down further, the farm program cost may trigger the new payment limit of $125,000 for larger farms. Peanuts have their own payment limit, separate from the $125,000 limit for other crops.

“Smaller farms will definitely increase peanuts,” Smith explained. “Large farms have the payment limitation that will potentially kick in.” He added that larger farms would likely choose to stay with their normal rotations, which often involve rotating corn with cotton.

Growers will also need to consider USDA marketing loan gains, which are accounted for in PLC and would potentially reduce the amount of the program payments.

Despite concerns of an oversupply, Georgia Peanut Commission Don Koehler said there may be room this year for more peanut production, and increasing peanut exports would help. According to the Peanut Stocks and Processing report issued last month by USDA’s National Agriculture Statistics Service, peanut stocks on Jan. 31 totaled 4.28 billion pounds, compared with 4.3 billion pounds a year earlier, and 5.18 billion pounds in 2013.

Koehler also noted that peanut exports are increasing, creating more customers for the product. Canada, Mexico, Europe, and Japan account for over 80 percent of U.S. exports, and the largest export markets within Europe are the Netherlands, the U.K., Germany, and Spain, according to the Peanut Council.

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The world of agriculture extends beyond what’s growing in your field or living in your barn, and here at Agri-Pulse, we understand that. We make it our duty to inform you of the most up-to-date agricultural and rural policy decisions being made in Washington D.C. and examine how they will affect you – the farmer, the lobbyist, the government employee, the educator, the consultant and the concerned citizen.